Monday, July 30, 2007

The Evil Overlord List

I first came across the Evil Overlord List (The Top 100 Things I won't do if I Ever Became Became an Evil Overlord) in the late 1990s. But in the last few weeks I've seen it mentioned three times: in a Jim Butcher/Dresden Files book and by two of my favorite bloggers (Steve Bainbridge at Professorbainbridge and Joe Carter at Evangelical Outpost). So, I guess that means I should post it on the blog (after all, it is a Monday).

The EOL contains a fairly complete list of caricature mistakes made by villains. A few of my personal favorites are:
  • I will be secure in my superiority. Therefore, I will feel no need to prove it by leaving clues in the form of riddles or leaving my weaker enemies alive to show they pose no threat (#11)
  • One of my advisers will be an average five-year-old child. Any flaws in my plan that he is able to spot will be corrected before implementation (#12)
  • I will not turn into a snake. It never helps. (#34)
  • And, showing that a good Evil overlord understands the power of incentives: I will spare someone who saved my life sometime in the past. This is only reasonable as it encourages others to do so. However, the offer is good one time only. If they want me to spare them again, they'd better save my life again. (#68)
If 100 things not to do isn't enough and you want to be the best Evil Overlord possible, there are a couple hundred more here and here.

Friday, July 27, 2007

Friday Link Dump

It's back in the saddle again in the Unknown Household. The Unknown Kids and Unknown Wife are at the beach, and I'm here working on research (ah, to be tenured). Since stuff has been piling up in my feed reader, it's time for a link dump to get rid of all the things I didn't post over my vacation:
The DK report has a good piece on market timing indicators. I question their usefulness, but it's interesting nonetheless.

The Aleph Blog is fast becoming one of my favorite sites. In this piece, it presents
twenty five ways to reduce investment risk. It also has nice piece explaining the Fed Model and Price-Book/ROE analysis.

Bespoke Investing has been researching patterns in analyst upgrades and downgrades over the last few years.

The NY Times reports on the rising popularity of 130/30 funds.

Here's a macabre but very interesting example of financial engineering - "Death bonds". The actual industry-preferred term is "life settlement backed securities". They are securities backed by the death benefits of life insurance polities. I think they're a good thing.

Academic Research

Keeping up with the Jones also seems to happen in the investing world. The NY Times reports on research by Illinois professors Zoran Ivkovich and Scott Weisbenner. They find that your investment choices are affected by what your neighbors are doing.

How does politics affect the stock market? According to this study by Tomasz Wisniewski titled "Can Political Factors Explain the Behavior of Stock Prices Beyond the Standard Present Value Models?", stocks tend to be overvalued (undervalued) when Democrats (Republicans) hold the Presidency, and high (low) when Presidential approval ratings are high (low). (HT: CXO Advisory Group)

Private Equity and Hedge Funds
In what's probably not a good sign for the PE market, there are increasing numbers of financing deals that are getting postponed or cancelled. reports.

Marketbeat lets us in on a technique activist investors use to bring more pressure on target firms. They increase their voting power over and above their actual stock holdings levels by using swaps and other derivatives.

Here's a new term (for me at least) - Pier Loans, compliments of Calculated Risk.
Enough for now. Back to work.

Thursday, July 26, 2007

More on Screen Recording Software

After a few missteps (and a call to Techsmith's customer support), I manged to get my screen recording software up and running. I usually spend the majority of the first day of class on administrative things - how I grade, how many quizzes, exams, projects, etc...

It's never fun, and it suck a lot of energy out of the first class. But it is important material. So this time, put it all into a short recording, and I'll post it on the web. I'll still hand out the syllabus in class (at the END of the class), but instead of wasting precious class time on what I call "administrivia", and can use it to deliver some real content.

I'm pretty excited about the prospects for this stuff. I can see myself eventually moving a significant portion of my material online, and then using classroom time for the elements that don't lend themselves to web-based learning - like working problems, cases, and classroom discussion. This will also make it very easy to transition my materials to an online setting.

Yes, I am a hopeless nerd. But I'm o.k. with that.

Update: Bob Jensen has one of the best sites I've seen on derivatives-related accounting material. Not surprising, he's also done a few Camtasia videos (links are in the comments section).

Wednesday, July 25, 2007

Using Screen Recording Software To Make Educational Videos

We survived our vacation - 2500 miles and three cities, each with different groups of friends or family over an 11 day period. I haven't yet gotten entirely back into the swing of things, but at least I've been in the office for a couple of days, gone on a couple of rides (yes, the bike has been tuned up and de-tarred), and gotten a variety of paperworky-type thingies out of the way (like sending off material to the builder of our house for the 1-year follow-up, signing contracts for teaching CFA prep for the coming year, signing up to take CFA level 1 this fall, and so on).

I'll get back to serious work tomorrow, but for the last couple of days I've been researching screen-recording software. These packages allow you to record whatever displays on your computer screen (along with a soundtrack) and convert the recording into a video file. After a bit of research, I settled on Camtasia Studio by TechSmith. It's amazingly easy - I was able to create videos of a powerpoint presentation with a voice over almost immediately.

Off the bat, I can see a couple of good applications for the software:
  • There are some topics that are pretty involved and technical but I'd rather not spend a lot of class time on. As one example, I assign a financial analysis project that requires the students to use our trading room software. I usually have to spend the better part of an entire class period working them through how to access the various databases they have available. With this software, I can boot up the software in my office, go through the various menus, and record a voice-over to explain what I'm doing. Then, the students can review the video at their leisure as often as they need to understand the various processes.
  • Second, I'd like to record my classes. Since I use Powerpoint in class, I can have the recording software running while I work through my presentation. If I also have a portable microphone on me, I can post a record of my slides and a voice over to the web for students to review as many times as they like. Also, if they miss a day they don't have to ask "Did we cover anything important?" -- they can see for themselves that we didn't.
  • Finally, in the spring I'll be teaching an advanced Corporate Finance class. Some of the cases I'd like to use assume knowledge that the students might not have the best grasp of. With the recording software, I can quickly put together some quick videos that they can view on their own before they start on the cases. For example, one of the cases requires them to set up an Excel spreadsheet with circular references. This way, I can set up an example with lots of explanation and put it up as a resource.
I can eventually see my classes evolving to a model where I put a lot of the basic material up on the web and use classroom time to expand on web material, work problems, and answer questions. It could also make it pretty simple to convert my classes to online versions.

At least that's what I'm thinking now. But I just got the software, so we'll see. On the plus side, there's a 30-day trial version that's fully functional. So, I can work out the bugs before I get the Dean to shell out for it. But even if I pay for it out of pocket, it's cheap - less than $200.

Thursday, July 19, 2007

Still On The Road

So far we're 7 days into a 12 day road trip, and it's been pretty good:
  • We've been to the Unknown Wife's family reunion in West Virginia (Unknown Son and Unknown Daughter both lost front teeth this week, so we told U.W's relatives it was so they'd fit in better in WV).
  • Following the reunion, we drove an additional 600 miles or so further south to visit friends we haven't seen in 4 years. While there, Unknown Wife visited quite a few old friends during the day. Since most of my friends from that time are either academics or work during the day, I spent the days at my alma mater. They were nice enough to give me an empty office to hang out in (thanks, guys), and I got a lot done -- finished edits on one paper (it's now back to my coauthors) and sent another paper out to a journal (it got rejected a month ago, and it just needed a few minor changes). I also saw a number of folks I hadn't seen in person for four years.
  • Last night, we visited some friends and while the adults hung out, our friends' kids treated ours to a viewing of The Princess Bride. Unknown Son is now quoting Inigo Montoya, and Unknown Daughter keeps mentioning the Rodents of Unusual Size.
  • We're now 600 miles back up the East Coast. Tomorrow we drive a few more hours to stay with an old neighbor (Unknown Wife's best friend from that time) and to visit friends from our old church. We'll stay there until Sunday afternoon when we head back home.
I may actually post some stuff tomorrow, but we'll see.

Wednesday, July 11, 2007

Leaving on Vacation

The Unknown Family is going on the road. We're leaving tomorrow and driving to West Virginia for a family get together, then to Atlanta for a few days, then to Baltimore, and then home. So, between tomorrow and the 22nd, we'll put in some 2500 miles of traveling. I'll try to update a few times, but blogging will be spotty at best (at least one of the places we'll be at has no wireless).

Since I'm not bringing my bike, I put in a longer ride today - my first 25 miler in a couple of years. It went pretty well - I was averaging almost 16 miles an hour over a pretty hilly course until I turned onto a road that was in the process of being paved. Somehow, bike tires don't roll nearly as well with a quarter inch of tar and dirt around them (imagine that). So, it's off to the bike shop for some new tires and a thorough cleaning and tune up (if the tires look like that, I can only imagine what's in the gears). The shop said I'll have my bike back on the 22nd, which works out just fine. But for now, my legs are surely beat.

update: I guess I went harder than I thought - going up stairs is no fun!

Monday, July 9, 2007

Efficient vs. Adaptive Markets (and a Joke)

"Classic" finance theory says that markets are efficient (that prices reflect all available information). However, real-world data reveals a lot of patterns that seem to contradict market efficiency - like the small-firm and value effects, post-earnings announcement drift, momentum effects, and so on.

One competing approach to the Efficient Markets Hypothesis is the "Adaptive Markets Hypothesis," or AMH for short (a term coined by Andrew Lo at MIT). It says that inefficiencies like the ones above can exist, but that market participants search them out and eventually arbitrage them away until the profits from using these patterns get too small to be worth the effort. So, in essence, it says markets are efficient after all, but in an evolutionary sense.

I'm agnostic about which approach is correct. The AMH has a lot to recommend itself because (according to Grossman & Stiglitz) if there aren't some inefficiencies, there isn't any incentive for market players to gather information (which makes markets efficient). The G&S paper alkways troubled me, and the AMH provides a partial answer.

I just came across a great illustration (HT: Barry Ritholtz) that I'll use in class the next time I teach about market efficiency and "anomalies" like the value-glamour effect:
Scene One — Efficient Markets Hypothesis

An economics professor and a grad student are walking along the sidewalk, and the grad student spots a twenty dollar bill on the sidewalk. He says, “Hey professor, look, a twenty dollar bill.” The professor says, “Nonsense. If there were a twenty dollar bill on the street, someone would have picked it up already.” They walk past, and a little kid walking behind them pockets the bill.

Scene Two — Adaptive Markets Hypothesis, Part 1

An economics professor and a grad student are walking along the sidewalk, and the grad student spots a twenty dollar bill on the sidewalk. He says, “Hey professor, look, a twenty dollar bill.” The professor says, “Really?” and stoops to look. A little kid walking behind them runs in front of them, grabs the bill and pockets it.

Scene Three — Adaptive Markets Hypothesis, Part 2

An economics professor and a grad student are walking along the sidewalk, and the grad student spots a twenty dollar bill on the sidewalk. He says quietly, “Tsst. Hey professor, look, a twenty dollar bill.” The professor says, “Really?” and stoops to look. He grabs the bill and pockets it. The little kid doesn’t notice.

Scene Four — Adaptive Markets Hypothesis, Part 3

An economics professor and a grad student are walking along the sidewalk, and the grad student spots a twenty dollar bill on the sidewalk. He grabs the bill and pockets it. No one is the wiser.

Scene Five — Adaptive Markets Hypothesis, Part 4

An economics professor and a grad student are walking along the sidewalk, and the grad student is looking for a twenty dollar bill lying around. There aren’t any, but in the process of looking, he misses the point that the professor was trying to teach him. The professor makes a mental note to not take him on as a TA for the next semester. The little kid looks for the twenty dollar bill as well, but as he listens to the professor drone on decides not to take economics when he gets older.

Read the whole thing at The Aleph Blog. Once you read it, look around the blog a bit. Although the author (David Merkel) is relatively new with his blog, he's been in the finance game for a while, and his stuff seems to be right on target - it's interesting, technically correct and very well written. And not too many blogs pull off that combination.

Saturday, July 7, 2007

Saturday Link Dump

Along with riding more frequently (did a fairly hard 20 miler today), I'm trying to empty my bloglines account at least every couple of days. So, it's time for a link dump:
Many investors know that expense ratios on mutual funds are important. IndexUniverse reports on academic research (by Edelen, Evans, and Kadlec) that shows how trading costs can be an even bigger drag on performance -- another good argument in favor of indexing.

A little while ago I posted some information on Investment Banking Compensation. Here's some related stuff (from Institutional Investor) on what hedge Fund analysts make.

While not as glamorous as the hedge-fund world, according to the Washington Post, accounting graduates are also raking in pretty good salaries. I know we don't have much trouble placing our undergraduate accounting majors here at unknown University.

The Mises Economics Blog relays some of Ambrose Bierce's (author of the Devil's Dictionary) best political definitions.

Do women talk more than men? According to this study published in the journal Science and mentioned by the New York Times, probably not. However, the study has some flaws.

Vegreville came up with rules to follow if you want to be a loser.
That's enough for now - Bloglines in empty, and work awaits.

Wednesday, July 4, 2007

Some July 4th Links

We're off to a family cookout, so no heavy posting today. But here are a few links for your Independence Day reading:
The Declaration of Independence most people have never read it through. So take a few minutes and do so before going about your day.

Our Sacred Honor - a piece that recounts what happened to the signers of the Declaration

The Pledge of Allegiance - 'nuff said.

The Star Spangled Banner - the words to our national anthem and a video of Whitney Houston singing it.
Now go grill some meat, light some fireworks, and have a happy 4th of July.

The Pursuit of Happyness

At the Unknown Household we've been enjoying our subscription to Blockbuster's DVD-by-mail service. Last night we saw The Pursuit of Happyness (appropriately enough, what with today being the 4th of July). I'd rate it the best movie I've seen in the past year, and one of the top ten on my all time favorites. The themes of the movie really hit home - it's a classic Horation Alger story. I always like movies about "stand-up" guys, and Wil Smith did a phenomenal job in portraying a man who rolled the dice with everything he had to work towards a better life. And the character he played (the real-life Chris Gardner), was determined to be there for his son even through it all.

I'd definitely recommend it - it's a good pick for the whole family, and the lessons it shows are worth repeating to any children in the vicinity.

Tuesday, July 3, 2007

Teh Internets is a Wonderful Thing

I needed a break from editing the paper I'm working on, so I switched over to working on a large SAS program I need for another project. While I'm waiting for it to finish running, here's a recent comic from

Nuff said.

Some Fun Wall Street Jargon

I get a kick out of jargon and slang. that's one of the things that makes finance fun - the colorful language. One of the things I particularly enjoyed when teaching about Mergers and Acquisitions were the names for anti-takeover strategies. Just to name a few, there's the poison pill, the scorched earth, white knights (and also white squires and grey knights), and my favorite, the "Pac-Man Defense".

Here's a short list and explanation for some of the jargon used in the investment and trading side of the Street, like "dead cat bounce", "air-pocket stock", and the "cockroach theory" of bad news.

Monday, July 2, 2007

Monday Link Dump

It's time to clean out my bloglines account, so here we go with today's Link Dump:
Abnormal Returns has a nice collection of links on options as an asset class, and in a related piece, CXO Advisory Group looks at the returns to writing index put options.

Bloomberg reports on the increasing use of options as a venue for illegal insider trades.

The Contrarian Perspective dissects one of the oldest scams around-- the "Pump and Dump".

The New York Times reports on people with an interesting habit-- abusing the Nigerian 411 Scamsters.

And in our painful Japanese video of the day, Craig Newmark links to a game show I think I'll pass on. Ouch.
That's all for today, folks. Time to do something productive before my coauthors start hounding me.

Sunday, July 1, 2007

What I Did During (The First Part Of) My Summer Vacation

I just realized that I haven't posted anything new on the blog for about 10 days, so I thought I'd let you know that I'm still alive and haven't stopped blogging altogether. But, I did feel a bit burned out on blogging, so I took a bit of a break. Here are a few updates on the summer so far:

I've been working on a few projects. One is editing a paper I'm doing with several other people. It's a new experience for me since a good part of the paper is theory-based, and I'm an empiricist at heart. So, I've been forced to brush up on a lot of the math I haven't used since grad school. In addition, I'm the only American among the coauthors, and they're all theorists. So, I'm in charge of "englishizing" the paper (their term). Hopefully it'll be handed back to my coauthors for their part soon.

I've been working on a second project in what's also a new area for me - it ties in options implied volatility to firms' information environments. While I'm familiar with the information asymmetry literature, the options stuff is new to me. And in addition, the data set is several times larger than any I've worked with, so I had to learn a few new SAS programming tricks. But being the nerd that I am, it's actually fun.

Logging my research (actually, my "writing") time has been a humbling experience. I 've been averaging one "zero time spent" day out of every three or four, and find that I don't spend nearly as much time writing as I thought even on the days I do write. But then, that's the point of the exercise. As my accounting friends say, "you can't manage what you don't measure".

I also got one small paper submitted, so I now have 4 under review.

On the personal side, I've been cycling pretty regularly (about 5x a week on average), and have done a few hard 15-20 milers. I'm still not in top shape, but I've been able to hold just shy of a 16 mph pace for a pretty hilly 20 miler. My goal for the summer is to get up to an 18 mph pace for the 20 miler and to ride to my mother's house, which is a very hilly 80 miles away.

Other than that, I've spent my time playing with the kids, trying to grow grass on the front part of my yard, and trying to unpack some of the boxes that have been in my basement since we moved almost a year ago.

I'll get back to posting some "real" stuff in the next couple of days.